Once a person grows into adulthood, the relationship between child and parent changes.
Where parents watch over their children meticulously in their youth, once those children become adults, parents see their role change, in some cases, to that of a “silent observer’. Parents watch their adult children grow socially, professionally and financially.
The financial aspect of an adult’s life is an area in which parents can wield great influence if they choose to do so. There is a comfort parents feel when their adult child has a good job and seems to be handling their personal finances properly.
There are also occasions where the adult child surpasses the parent in matters related to money and investing. Apparently, it happens more often than might be initially surmised.
According to our newest wealth segmentation series study Financial Behaviors and the Investor’s Mindset, 40 percent of Millionaire investors with a net worth between $1 million and $5 million believe their adult child is better at investing than they are. Surprisingly, that percentage climbs to 47 percent among Ultra High Net Worth investors with a net worth between $5 million and $25 million.
“When your child grows into adulthood and you discover he or she is capable of handling their finances without your assistance, that knowledge can take a huge burden off of you,’’ said Spectrem president George H. Walper Jr. “The children of wealthy investors have probably had to make a few of their own financial decisions along the way to adulthood. Apparently, for many, those decisions are being made appropriately.”
The percentage of Millionaires who believe their adult children are better investors is telling because most Millionaires have a fairly high opinion of their own knowledge in that area. Twenty-one percent of Millionaires believe there are very knowledgeable about financial products and investments, while 59 percent indicate they are “fairly knowledgeable”. Only 3 percent of Millionaires indicate they are not at all knowledgeable.
While 40 percent of Millionaires see their adult children as better investors, 44 percent do not concern themselves with the financial situation of their children. That would seem to indicate the children do not need their parents’ involvement.
Peeking into the future a bit, 30 percent of Millionaires believe that when their children reaches their parent’s current age, they will be better off than their parent at that time. That can be a combination of belief in the child’s handling of finances, the child’s professional success and the anticipation of how the economy will change over time.
Optimism about the current state of the economy as it relates to wealthy investors is not high. Less than half of all Millionaires believe their financial situation will improve in the next 12 months, while 41 percent believe their financial situation has gotten better in the previous 12 months.
Millionaire investors were also asked to respond to the statement “My children spend more than I did at their age”. Only 31 percent answered affirmatively to that statement, perhaps another sign of financial maturity among the next generation of investors.